Portugal Says Revamp of State Is Crucial for Sustainability

A revamped Portuguese state including spending cuts is “crucial” for the country’s sustainability, said Carlos Moedas, secretary of state to the prime minister.

“We need to build a state that does not weigh as much on citizens and on the taxes they have to pay,” Moedas told reporters in Lisbon today.

The government is studying proposals in an International Monetary Fund report on spending, he said. Portugal in November said it asked the IMF and the World Bank for technical support as it plans to cut spending by 4 billion euros ($5.2 billion) in the two years through 2014.

Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he tries to cut trim state costs and raises taxes to meet the terms of a 78 billion- euro bailout from the European Union and the IMF. Portugal has already been given more time to narrow its deficit after tax revenue missed forecasts and the economy heads for a third year of contraction in 2013.

“The government’s spending reduction target can only be achieved by focusing on major budget items, particularly the government wage bill and pension spending,” the IMF said in the report posted today on the Portuguese government’s website.

Overtime Pay

“Over-employment is of concern in the education sector, the security forces, and with respect to workers with little formal training, while high overtime pay for doctors is of concern in the health sector,” the report said.

The Portuguese government on Nov. 19 said it forecasts debt will peak at 122.3 percent of gross domestic product in 2014 after reaching 122.2 percent in 2013. It aims for a budget deficit of 4.5 percent in 2013 and will only narrow the shortfall below the EU’s 3 percent limit in 2014, when it targets a 2.5 percent gap.

Finance Minister Vitor Gaspar on Oct. 3 said the government plans to implement an “enormous” increase in taxes on wages and other income to meet budget deficit targets in 2013. Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers.

To contact the reporters on this story: Joao Lima in Lisbon at jlima1@bloomberg.net; Henrique Almeida in Lisbon at halmeida5@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net

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